Correlation Between Utilities Fund and Health Care

Can any of the company-specific risk be diversified away by investing in both Utilities Fund and Health Care at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Utilities Fund and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Utilities Fund Investor and Health Care Fund, you can compare the effects of market volatilities on Utilities Fund and Health Care and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Utilities Fund with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Utilities Fund and Health Care.

Diversification Opportunities for Utilities Fund and Health Care

0.66

Correlation Coefficient

Utilities Fund  Health Care

Poor diversification

The 3 months correlation between Utilities and Health is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Fund Investor and Health Care Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Fund and Utilities Fund is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Utilities Fund Investor are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Fund has no effect on the direction of Utilities Fund i.e., Utilities Fund and Health Care go up and down completely randomly.

Pair Corralation between Utilities Fund and Health Care

Assuming the 90 days horizon Utilities Fund Investor is expected to under-perform the Health Care. In addition to that, Utilities Fund is 1.3 times more volatile than Health Care Fund. It trades about -0.05 of its total potential returns per unit of risk. Health Care Fund is currently generating about -0.01 per unit of volatility. If you would invest  4,223  in Health Care Fund on October 21, 2024 and sell it today you would lose (16.00) from holding Health Care Fund or give up 0.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Utilities Fund Investor  vs.  Health Care Fund

Utilities Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Utilities Fund is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Health Care Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Health Care is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Utilities Fund and Health Care

The main advantage of trading using opposite Utilities Fund and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Utilities Fund position performs unexpectedly, Health Care can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Health Care will offset losses from the drop in Health Care's long position.

The idea behind Utilities Fund Investor and Health Care Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Correlations module to find global opportunities by holding instruments from different markets.